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EURUSD: euro slumps to reversal zone at 112 – 135 degrees

On Wednesday the 7th of February, trading on the euro closed down. The EURUSD pair fell from 1.2405 to 1.2246 (-159 pips). The main driver behind the dollar’s surge was the rise in US bond yields coupled with the extension of US government funding until the 23rd of March. This downwards dynamic on the EURUSD was enough to sink the EURGBP cross as well.

My prediction of a reversal model failed. The news surrounding the dollar as well as a renewed decline on the euro crosses combined to block buyers from opening new long positions. The bears ended up pushing the price into the reversal zone between the 112th and 135th degrees. The euro’s decline subsided as it reached the D3 MA line.

Yesterday, sellers broke the 1.2295 support. The technical picture on the daily timeframe is looking bearish, but the 1-hour and 4-hour timeframes show the euro recovering by the end of the week.

Considering that yesterday’s drop came to around 150 pips, a good initial target for buyers would be to return to the trend line at 1.2358 (90 degrees). If the daily candlestick closes above 1.23, this would create a buy signal. If the hour closes below 1.2238, however, this will scupper any growth prospects.

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